Financial Management and Advice for Young Artists

January 9th, 2007

New York, NY

Introduction

• Greetings: • Introduce myself:

• Thomas Masse, Deputy Dean, YSM• Educational/Music Background• At Yale for 8 years• MBA nearly complete in Finance• My interests in personal financial responsibility and a

strong advocate for the young musician’s social and financial well-being

• Powerpoint Slides: My philosophy – environment. My lecture style – feel free to interrupt me.

What this talk is not about:

• This is not a session designed to give investment advice or to talk about how to strike it rich

• (if you want that, see FT, WSJ, CNBC, etc)• Ice breaker: did you know the FT and WSJ have

great arts/culture reviews• If this is the young artist’s intention, then there

are certainly far better people than myself to offer that advice

What this is about:

• is providing young artists with basic information that will allow them to make prudent financial decisions, because, as an artist, the mission of that person is to be creative and to do so should be without distractions.

• “And in my talk, I am focusing primarily on young musicians leaving music school and embarking on a career. I am assuming a 22-26 year old. And my comments are under the assumption that we’re talking about US citizens, or Int’l students working in the US.”

[and this is why this is an appropriate topic to this conference]

Young artists, be they musicians, dancers, actors orvisual artists, need to be free from worries and

distractions in order to practice their craft at the highest possible levels.

Given the financial risks involved with embarking on a career in the performing and visual arts, money and

finances can and will be a major distraction and at times an impediment to the artist’s professional advancement.

Why us?

• Why should the responsibilities of this issue fall to us?

Answer: As with so many of the issues we address, Who else is going to do it?

• Studio Teacher? Probably not. Parents, maybe (though int’l complications). Friends? Probably.

Everyone is uncomfortable talking about money!

• Let me pose the following question to you:

• Q: Do we do our students a disservice by not discussing personal finance issues?

• A: Yes, we do. We are a network of Music Career Development Officers. We need to be talking about the financial issues that our kids will face as they begin their careers.

• When we do wind up talking about $, it is done in a negative way. For example:

• “This is such an incredibly rewarding field to work in, but you’ll never make any money.”

So, does that imply a negative connotation? As if you won’t be rich, so you’ll be poor!

[Suze Orman is terrific, but]

• I’ll sometimes have the TV on and I sometimes catch myself watching investment advice shows on TV. They can be helpful – I like Suze Orman.

[I like her approach: it’s tough and no nonsense. It’s practical and applicable to most of what anyone may need (credit cards, mortgages, basic investments)]

• BUT, there are things that are different and unique to the music world.

Why are musicians different from other non-artistic peer groups when it comes

to financial information?

• By that I mean, the financial issues that face our kids are different from those faced by their peers in the same age group.

• Ask the group: Compare for us the financial issues facing a recent graduate from the Juilliard School entering into the NY freelance world and those issues of an NYU grad going to work for General Electric (a nice CT-based company)

Peer Comparison

• Juilliard vs NYU grad:

GE: a new hire will have access to great human resource advice: a seasoned professional will discuss Health Care options, life insurance, retirement programs, tuition reimbursement issues, child care programs, etc.

• Freelance: will have to rely on word-of-mouth and their own research via the web and self-help books

Peer Comparison

• Which of the above mentioned individuals is at a financial advantage or disadvantage?

Juilliard kid is at a severe disadvantage, not because of the career path chose, but because of the information made available to them.

Really just a case of traditional delivery of information. Our kids should have the same information available to him that is available to their peers in non-artistic communities.

Closing of Introduction Section: • We must become that human resource

advisor at GE who helps to dispense financial information. By no means do we have to profess to be experts on this issue, but we have a lot to offer.

So, what can we do??

• At this point, some of you may be thinking, “I don’t have the skills available to offer this kind of advice”

Remember: this is not a discussion of investment advice, but a means of providing information for our kids to make good financial decisions

What do we know about?

• Health Insurance and Medical Benefits• Life Insurance• Credit Cards• Credit Ratings• Mortgages and Loans• Taxes• The cost of living• Budgeting• Costs of Raising a Family• Lifestyle Choices• Retirement

[Discuss Each One: Notes to Follow]

• Health Insurance and Medical Benefits

- US: students leaving University w/o healthcare

• Life Insurance

- is there someone you would like to provide for in the unlikely event of your death?

Discussion (Con’t)

• Credit Cards - we all use them. I advise students to use them

for convenience or emergencies or necessities. - carrying a heavy credit card balance can be

devastating to the financial capabilities of a young musician

• My Citibank Mastercard carries an APR (Annual Percentage Rate) of 21.073%. For a cash advance, it jumps to 23%. It would take a student 50 years to payoff a $1,000, if they just make the minimum payments required by the credit card issuer.

Does anyone know this quote?

• “The most powerful force in the universe is compound interest”

• Does anyone know who said this?

A: The author of the theory of relativity: Albert Einstein.

Discussion (Con’t)

• Credit RatingsYou need to have a clean credit record. And this goes to Int’l students as well. The US does not permit someone to go into bankruptcy protection as easily as it once did. Your credit mistakes can follow you anywhere. This credit rating (FICO in the US) gives you access to loans.

• Mortgages and LoansA special category of loans is that of loans made to purchase instruments.

Discussion (Con’t)

• Taxes

• I’m going to address this in a few minutes, but this is something that we all know something about. And we all know how complicated this is.

Discussion (Con’t)

• Budgeting and the Cost of Living:

• This we know about, but consider the following: Budgeting one’s income becomes very difficult for the young musician.

• My strongest advice in this department: At the beginning of every year, buy a small notebook (or use your date planner) to track expenses. You will see how much you spend and on what. And come tax time, you’re all set.

Budgeting (Con’t)

• Smokers

In NY, it’s nearing $7/pack.

* Balance your check book each month! Easy to do online!

Tracking the spending in a notebook takes discipline, but it’s crucial.

Budgeting/Caring for Family

• Take these costs into account

Lifestyle Choices

• Everyone needs to make their own decisions about how they want to live.

- some people have modest needs, other less so. Increasingly, individuals have great access to information concerning the cost of living.

- increasingly, the young musician has more and more choice in the decision about where they will live.

Lifestyle Choices

• For example: How much is reasonable to spend on rent, given a free-lance income (and I say this in the loosest of terms) with student loans coming due? How much will you have to earn to manage this sort of income to debt ratio?

Retirement

• A big issue.

– Social Security– Pensions (Union) – lower and lower– In US: more common options: 401k, (403b), IRA’s:

Roth– Time Value of $. Dollars invested 10 years ago are

worth more than they are today. The average saver in the US gets started earlier and frequently has an employer backed plan to help. Our kids do not. And on average, our kids are not beginning to save until their late 20’s and have lost peak earning years

Taxes and Legal Advice

• There are tremendous opportunities out there for young musicians when it comes to taxes. Most never take advantage of these opportunities because (1) the laws are complicated, (2) who has time to research all this, and (3) who has all their materials?

For example: (next slide)

Qualified Performing Artist

• Performing Artists: You provided services in the performing arts for two or more employers, receiving at least $200 or more in wages from each employer, your job-related expenses are more than 10% of your income from your performing artist jobs, and you have adjusted gross income of $16,000 or less (without regard to this deduction). Your filing status cannot be married filing separately.

Accountants and Lawyers

• Tax and legal Professionals• (tell them my story)• Depreciation, expenses, • Musicians will get what is rightly theirs, legally

and fairly!• Yale provides tax help to Int’l students – also

legal advice• You need to work as advocates in your

community: find tax and legal professionals willing to work at a deeply reduced rate